The Role of Pricing Departments

Most people don’t know pricing, and most people don’t know they don’t know pricing.

More and more companies are building pricing departments in recognition of these two “facts”. I’ve seen several different ways of organizing pricing, but one seems to stand out, especially for large corporations.

These effective pricing departments essentially act as internal pricing consultants. They understand how to apply pricing concepts, they understand the pricing systems used within the company, and they understand the corporation’s objectives and how pricing contributes to achieving those goals. However, pricing departments do not understand the unique value proposition offered by each individual product.

Given that, pricing departments have several critical roles. They provide pricing expertise to product lines who ask for it or need it. This often looks just like a consulting role, coming in to learn as much as possible, helping clean up the situation and then leaving it to the product line to do the continuing execution.

Pricing departments also help define, resource, and implement new pricing tools and processes. Pricing touches on almost every other department within a company. It certainly effects sales, marketing, and finance. Everyone seems to have a strong interest. Pricing is the role that can balance all of these interests in creating company wide processes and systems.

Finally, pricing departments take a lead role in monitoring pricing effectiveness. They usually set up the systems to collect the right data and share that information with the product teams. They frequently build in alerts to notify the product teams when something interesting changes.

Ironically, one thing pricing departments rarely do is set prices. They don’t know enough about the specific products to do so. Instead they work closely with product managers or product specific pricing people to make sure they know how to determine the right price.

Of course, it’s never as simple as this, but as a general guideline this structure for pricing departments within large corporations works well.